Treasuries fell, pushing yields to the highest level since 2010 relative to their Group of Seven peers, on speculation a strengthening economy will lead the Federal Reserve to trim its bond-buying program next month.
Treasuries dropped for a third day, the longest streak since June, before the Fed issues the minutes of last month’s meeting on Aug. 21. Ten-year securities yielded 42 basis points more than bonds in an index of G-7 debt, the most since May 2010, according to data compiled by Bloomberg. Chairman Ben S. Bernanke and his fellow policy makers on the Federal Open Market Committee are scheduled to meet again on Sept. 17-18.
“Everyone is concerned about this FOMC meeting,” said Kim Youngsung, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $101.6 billion in assets. “Bernanke is going to taper in September. Interest rates are going up.”
Yields on U.S. 10-year notes advanced four basis points to 2.86 percent as of 6:42 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2.5 percent note due in August 2023 fell 10/32, or $3.13 per $1,000 face amount, to 96 7/8. Yields (USGG30YR) touched 2.87 percent, the most since July 2011. A basis point is 0.01 percentage point.
U.S. government securities due in 10 years and longer plunged 11 percent in the 12 months ended Aug. 16, the biggest loss of 174 debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies.
Investors and analysts will be looking for clues in the minutes on when central bankers plan to trim their $85 billion in monthly asset purchases. Officials will probably begin to reduce bond buying next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.
Allen Lei at Hontai Life Insurance Co. said he’s unwinding a short position, a bet against Treasuries. Yields have climbed too far based on the outlook for Fed tapering, according to Lei, who is based in Taipei and helps oversee the equivalent of $6.1 billion.
“The markets over-reacted,” he said. “I’ve started to take profits on my short position.”
Yields have risen so far, so fast that trading patterns signal they’re oversold. The 14-day relative-strength index for the 10-year yield has risen above the 70 threshold that indicates it has climbed too much. The last time it exceeded that level was July 5 and preceded a two-week rally in Treasuries.
Bonds also slid last week on concern former Treasury Secretary Larry Summers will win out over Fed Vice Chairman Janet Yellen as the next head of the central bank, according to Jefferies LLC. Bernanke’s term ends in January.
“The growing conviction that Larry Summers as Fed Chairman should be equated with an accelerated rate of tapering has been the primary catalyst to the recent distress in both the bond and stock markets,” Ward McCarthy, the chief financial economist at Jefferies, wrote in a Aug. 16 report. The company is one of the 21 primary dealers that trade directly with the Fed.
The increase in yields pushed them to a two-year high relative to dividends of companies in the Standard & Poor’s 500 Index.
The spread between 10-year Treasuries and the S&P 500 dividend yield widened to 72 basis points, the most since August 2011. The S&P 500 dividend yield was 2.11 percent. The index has fallen for two weeks after climbing to a record on Aug. 2.
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